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ThrustVectoring comments on Bitcoins are not digital greenbacks - Less Wrong
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Bitcoin's long-term value, in my opinion, is near-zero. It's not anonymous currency, but pseudonymous. If you set up a network of number-only Swiss bank accounts and use it to conduct business illegal in the US, the US government will eventually link Swiss account numbers to people and get everyone in trouble. Analogously, the US government will eventually force currency exchanges to link people to bitcoins as a prerequisite for operating. Foreign bitcoin exchanges complicate this somewhat, but it merely slows the US government down.
Drug dealers (etc) have bills to pay, and those bills are denominated in USD. Take away the ability to anonymously convert bitcoins into cash or vice versa, and the there are no longer sellers willing to accept bitcoins, since they can't be used to pay rent. Selling the bitcoins for other things just kicks the can down the road - whoever is buying the bitcoins faces the same dilemma.
So in short, my analysis is that the bitcoin network operates essentially at the mercy of the US government, and it's value of a currency is directly tied to the fact that it hasn't been a big enough issue for the US government to mobilize a shutdown. That doesn't stop you from going broke shorting bitcoins.
I realize this is one of the current meta-contrarian points about Bitcoin contrarianism, but it's still wrong: the pseudonymity is only partial and doesn't matter:
#bitcoin-otc); hawala still exists despite substantial US interest and effort into crackdownsThere are political reasons. The Bitcoin Foundation is lead by people who have a business interest to avoid upsetting the US authorities.
Not much of one. They have yet to apparently delay any noxious-to-US-authorities features or bugfixes, and Gavin's past actions indicate he feels more beholden to the miners than the authorities (witness him giving away something like $70k to the people who contributed to the recent 0.8 blockchain fork).
Besides the absence of evidence that this is an issue, the Satoshi client can be forked easily, and refusing to incorporate a usable Zerocoin - which is something a lot of people want even if they don't use SR - would be an excellent incentive to do so.
But the miners aren't on the Bitcoin Foundation board. MtGox, BitInstant and CoinLab have their representatives on the board.
Gavin also acted under immense timepressure in the 0.8 fork case.
And yet.
His recompense was done afterwards, where he could repent at leisure; during the fork, of course, he was quite busy.
Actually, I realized that my mental model of how bitcoins acquired value with respect to the US dollar is wrong. BTC being fungible with US dollars is still important, but it's use in transactions isn't. A drug dealer and drug buyer would both willingly trade $40 worth of drugs for $40 worth of bitcoins, but whether $40 of bitcoins is 1 BTC or 100 doesn't make a bit of difference to them. Drug dealer still immediately cashes out his bitcoins so that they can restock their inventory, and the drug buyer still immediately buys bitcoins so that they can buy drugs. What these transactions do is merely fund the BTC exchanges through transaction fees - there's no long-BTC position held for any appreciable length of time.
There's still a kernel of truth to the analysis, though. BTC speculators - those actually holding the long positions in BTC - aren't going to be willing to stick around for the legal risks of money laundering (at least, that's what it could be in the eyes of the US Government). I'm still retracting, though, since I realized that I did things wrong.
In short, the risk is more of money coming from the bitcoin ecosystem being automatically treated as dirty money. This discourages speculation, which tanks the price.
This assumes that the drug dealer has an easy and fast way to wash the bitcoins into clean money. If a drug dealer withdraws $100,000 from mtgox that will raise some flags. He has to explain to the IRS the source of the money.
Given his situation he has an incentive to buy the drugs from his supplier with bitcoins. Those Bitcoins might go to a warlord in Afghanistan who uses them to buy weapons.
Have you read the FINCEN Bitcoin guidance?
Yes. Also, governments won't tolerate further taxation and financial regulatory control being taken away from them (since that taking away is not paid for by lobbying) towards some kind of shadow economy. If it becomes large enough so that a random senator will know what it is, there'll be some guise ("drug currency") to control it, its viability for the US market will plummet, and once that's out of the picture ...
For what it's worth, two senators did mention Bitcoin in a letter to the Attorney General about the Silk Road two years ago. As far as I'm aware, nothing came of it.